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According to left-wing think tanks, columnist and bloggers – and,
of course, the Occupy Wall Street radicals – the top 1
percent have been exploiting the 99 percent for decades.

The rich have been getting richer at the expense of the middle
class and poor.

Really? Just think for a second: if inequality had really
exploded during the past 30 to 40 years, why did American
politics simultaneously move rightward toward a greater embrace
of free-market capitalism?

Shouldn’t just the opposite have happened as beleaguered workers
united and demanded a vastly expanded social safety net and
sharply higher taxes on the rich? What happened to presidents
Mondale, Dukakis, Gore and Kerry? Even Barack Obama ran for
president as a market friendly, third-way technocrat.

Nope, the story doesn’t hold together because the financial facts
don’t support it. And here’s why:

1. In a 2009 paper, Northwestern University economist Robert
Gordon found the supposed sharp rise in American inequality to be
“exaggerated both in magnitude and timing.” Here is the
conundrum: family income is supposed to rise right along with
productivity.

But median real household income — as reported by the Census
Bureau — grew just 0.49 percent per year between 1979 and 2007
even as worker productivity grew four times faster at 1.95
percent per year. The wide gap between the two measures, if
accurate, would suggest wealthy households rather than
middle-class families grabbed most of the income gains from
faster productivity.

But Gordon explained that this “compares apples with oranges, and
then oranges with bananas.” When various statistical quirks are
harmonized between the two economic measures, Gordon found
middle-class income growth to be much faster and the
“conceptually consistent gap between income and productivity
growth is only 0.16 percent per year.” That’s barely
one‐tenth of the original gap of 1.46 percent. In other words,
income gains were shared fairly equally.

2. A pair of studies from 2007 and 2008 conducted by the Federal
Reserve Bank of Minneapolis supports Gordon. Researchers examined
why the Census Bureau reported median household income stagnated
from 1976 to 2006, growing by only 18 percent. In contrast, data
from the Bureau of Economic Analysis showed income per person was
up 80 percent.

Like Gordon, they found apples-to-oranges issues such as
different ways of measuring prices and household
size. But in the end, they concluded that “after
adjusting the Census data for these three issues,
inflation-adjusted median household income for most household
types is seen to have increased by 44 percent to 62 percent from
1976 to 2006.” In addition, research shows that
median hourly wages (including fringe benefits) rose by 28
percent from 1975-2005.

3. A 2008 paper by Christian Broda and John
Romalis from the University of Chicago documents how
traditional measures of inequality ignore how inflation affects
the rich and poor differently: “Inflation of the richest 10
percent of American households has been 6 percentage points
higher than that of the poorest 10 percent over the period 1994 –
2005.

This means that real inequality in America, if you
measure it correctly, has been roughly
unchanged.” And why is that? China and Wal-Mart. Lower-income families spend a larger
share of income than wealthier families on goods whose prices are
more directly affected by trade. Higher income folks, by
contrast, spend more on services which are less subject to
foreign competition.

4. A 2010 study by the University of
Chicago’s Bruce Meyer and Notre Dame’s James Sullivan notes that
official income inequality statistics indicate a sharp rise in
inequality over the past four decades: “The ratio of the 90th to
the 10th percentile of income, for example, grew by
23 percent between 1970 and 2008.”

But Meyer and Sullivan point out that income statistics miss a
lot, such as the value of government programs and the impact of
taxes. The latter, especially, is a biggie. The
researchers find that “accounting for taxes considerably reduces
the rise in income inequality” over the past 45
years. In addition, “consumption inequality is less
pronounced than income inequality.”

5. Set all the numbers aside for a moment. If you’ve lived
through the past four decades, does it really seem like America
is no better off today. It doesn’t to Jason Furman, the deputy
director of Obama’s National Economic Council. Here is Furman back in 2006: “Remember when
even upper-middle class families worried about staying on a long
distance call for too long? When flying was an expensive luxury?
When only a minority of the population had central air
conditioning, dishwashers, and color televisions? When no one had
DVD players, iPods, or digital cameras? And when most Americans
owned a car that broke down frequently, guzzled fuel, spewed foul
smelling pollution, and didn’t have any of the now virtually
standard items like air conditioning or tape/CD players.”

No doubt the past few years have been terrible. But the past few
decades have been pretty good — for everybody.